Federated Municipal High Yield Advantage Fund (C) FMNCX

Share Classes Product Type Asset Class Category
Mutual Fund Fixed Income Muni National
As of 12-31-2017

Muni Bond Market Q4 2017

Yields on intermediate- and short-term Treasury securities increased, while yields on long-term Treasury securities declined during the fourth quarter of 2017 amid ongoing moderate U.S. economic expansion, incremental tightening of monetary policy by the Federal Reserve, continued modest inflation and enactment of federal tax cuts in December. Two- and 10-year Treasury yields increased by 40 and 7 basis points, respectively, while the 30-year Treasury yield decreased by 12 basis points. Municipal bond yields followed a similar pattern over the quarter, after some bouts of volatility related to a record surge in municipal issuance late in the year ahead of the effective date for tax-policy changes. The surge in supply was met with strong demand, thus allowing yields on intermediate- and long-term municipal bonds to decline more than was observed in the Treasury market. Municipal Market Data (MMD) 2-year AAA tax-exempt yields increased 56 basis points, while the 10- and 30-year AAA tax-exempt yields decreased by 2 and 30 basis points, respectively.

The S&P Municipal Bond Index posted a return of 0.64%. The 3-year component of the index returned -0.92%, while 10-year component returned 0.60% and the portion of the index maturing in 22 years and longer returned 2.14%. The AAA/Aaa component of the index returned 0.40%, the A-rated component returned 0.87% and the BBB-rated component returned 1.55%. The S&P Intermediate Municipal Bond Index posted a return of 0.11%. The S&P High Yield Municipal Bond Index returned 0.96%, but rose to 2.00% when excluding sharply underperforming Puerto Rico bonds.

Performance

During the fourth quarter of 2017, the fund’s total return at net asset value (NAV) was 1.69% for Institutional Shares, 1.62% for Class A and Class F Shares and 1.43% for Class B and Class C Shares. The fund’s best-performing sectors for the quarter were Lifecare, Incremental Tax and Other Revenue bonds. Lagging sectors were Public Power, State General Obligations and Pre-Refunded bonds (bonds for which the principal and interest payments are secured or guaranteed by cash or U.S. Treasury securities held in an escrow account). The fund’s duration increased over the quarter and remained short to its index.

Performance data quoted represents past performance which is no guarantee of future results. Investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than what is stated. To view performance current to the most recent month-end and for after tax returns, click on the Performance tab. Performance does not reflect the maximum 4.5% sales charge for Class A Shares, the maximum 1% sales charge for Class F Shares, the maximum 1% contingent deferred sales charge for Class C and Class F Shares nor the maximum 5.5% contingent deferred sales charge for Class B Shares. If included, it would reduce the performance quoted.

Click the Performance tab for standard fund performance.

Strategy

During the fourth quarter of 2017, the fund focused on the selection of lower-quality securities, which typically have higher yields than investment-grade securities available in the market; the selection of intermediate- to long-term maturity bonds, which typically have higher yields than short-term bonds due to the upward-sloping yield curve; active management of the fund’s duration, which indicates the portfolio sensitivity to changes in interest rates; and allocation of the portfolio among securities of similar issuers (referred to as sectors). Incremental total return also was pursued through active management of credit risk. The fund was segregated by credit quality into two parts: investment-grade bonds and non-investment-grade bonds. The investment-grade positions emphasized lower-quality investment-grade bonds (BBB-rated or unrated bonds of comparable quality). However, the fund also held higher-quality bonds (A-rated or better, or unrated bonds of comparable quality) for liquidity and to seek to decrease the overall credit risk of the fund. Transactions during the quarter focused on reacting to the new tax law, realizing value, improving structure and managing cash flow.

Click on the Portfolio Characteristics tab for more information on quality ratings.